In the 1920s, when the United States was still a place where you could find a few swashbuckling entrepreneurs, General Motors was becoming the most revolutionary organization in the world. Astonishingly, GM would overtake indomitable Ford as the world's premier automobile manufacturer by reorganizing itself on a scope and scale never tried before. While Ford gave mobility to America by marketing an automobile in a middle-class price range, GM gave organization to large-scale manufacturing that enabled businessmen to profit from their genius and spawn more businesses.

The architect of all this was Alfred P. Sloan, Jr. As head of GM during its crisis years, Sloan probably saved GM from extinction by reconciling the conflicting pressures that haunt any organization between centralization and decentralization. In his autobiography, My Life at General Motors, which has become the US business executive's capitalist handbook, Sloan told how he combined autonomous, decentralized units—sometimes competing with one another for the same driver—with centralized financial controls, all within the same company. That, plus his vision of a segmented automobile market running the gamut from used to premium-priced cars, eventually swept past Ford, which stuck too long to a centralized organization churning out one kind of vehicle until finally even Ford caved in and adopted the winning GM formula.

But Sloan's work, once a handbook, has become potentially an epitaph. Modern industrial organizations no longer turn out single products made by single technologies. They no longer operate in one country. And, as the Japanese have shown, there isn't a single industrial company that can afford to be strictly "managerial" anymore, dealing only with the "known." As an industry undergoes the kind of turmoil that rising oil prices have wreaked on automobiles, increasingly the payoff comes from innovation, not just production efficiencies.

John Z. De Lorean, a refugee from GM, now gives a gossipy glimpse at the damage Sloan's philosophy has wreaked behind the doors of GM itself, in J. Patrick Wright's book, On a Clear Day You Can See General Motors. Under Sloan's guidebook, GM is run by committees staffed with engineers and accountants—the most powerful groups in the company. But that system in fact has evolved to a point where the company is "clearly in the hands of the financial side of the business," says De Lorean. A weak company president and strong chairman, as dictated by Sloan, has worked to undercut long-range planning and policymaking and has fostered a promotion and incentive system based on short-term profits and "loyalty to the boss."

The healthy tension Sloan envisioned between centralized and decentralized control is dead. Centralization has won, says De Lorean. "The divisions are more under the operational control of corporate management than at any time in the peacetime history of the corporation," he says. As for Sloan's management-by-committee philosophy, that has turned into "management by task force," where difficult problems are "solved" by assigning groups to study them. De Lorean calls this a "copout…by management saddled with a system that simply does not work."

De Lorean concludes that Sloan's dream has turned into a corporate nightmare, with management "unable to accept criticism inside or outside, totalitarian in its exercise of authority, and thin at the top in the broad-based understanding and experience needed to manage the business." He recommends that GM "shift back to decentralization" and that top management "relinquish its role in formulating operating decisions" and return to its role of "forming corporate policy and planning the company's future."

De Lorean is probably too rough on GM for failing to manufacture small cars sooner. The US automobile market in the past decade has become hostage to expensive government air pollution and safety standards and has moved from artificially low fuel prices to higher, market prices. No foreign automobile company now grabbing shares of the US market has been quite so wrenched out of one environment and into another. Because GM made the decision to downsize its cars before other US auto makers, there is reason to think that there's life in the old Sloan system yet.

Nonetheless, an organization that encouraged risk taking might have paid more attention to the move toward marketing "world cars" and not focused entirely on what US buyers now demand. It would have placed a premium on innovation (De Lorean contends that GM's last innovation was the automatic transmission) and would not have completely missed the marketing impact of automobile quality. That story—of Japanese manufacturers borrowing US ideas about quality control, incorporating them into their manufacturing systems, and marketing quality as an added advantage—is a sad one indeed.

The dream of combining centralization and decentralization in one organization is the same federalist dream that guided this country after the American Revolution. Now both GM and the United States of America are grappling with the same question: Can this combination work, or does centralized authority eventually overwhelm the weaker decentralized units? Like President Reagan, Sloan's successors must now give smaller profit centers more control over their own destinies—or risk falling behind other, smaller competitors. Whether this reversal in authority is possible after years of inertia is the key organizational question of our time.

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